We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

Précis - Everything Everywhere is set to become the first national provider of 4G services in the UK following a decision by Ofcom on 21 August 2012 permitting it to use elements of its existing 1800MHz spectrum to deliver Long Term Evolution ("LTE") and WiMAX services.

What? - As part of the move to 4G services, Ofcom will be auctioning parts of the 800MHz and 2.6GHz spectrum. Everything Everywhere ("EE"), the amalgamation between T-mobile and Orange, currently provides services to its customers using elements of its existing 1800MHz and 2.1GHz spectrum. In September 2011 EE sought to gain a competitive lead over its competitors and made an application to Ofcom for a variation of its existing licence terms so as to permit it to use its existing 1800MHZ spectrum (currently used for 2G services) to deliver 4G (LTE and WiMAX) services. The application followed the competition review of the merger of T-Mobile and Orange to form EE, in which the European Commission concluded that the merger would not restrict competition in the UK on condition that that EE would divest itself of a part of its 1800MHz spectrum.

So what? The immediate effect of the Ofcom decision is that EE will roll out the first national 4G network in the UK (UK Broadband currently operates a wholesale LTE network in London at 3.5GHz). EE has previously stated that should Ofcom consent be forthcoming, it would be in a position to commence operational roll out of a 4G network before the end of 2012 and this does not appear to have changed. As a consequence EE will obtain a first mover advantage in the market by operating its new network before its competitors have had an opportunity to bid for the 800MHz and 2.6GHz spectrum. The current auction timetable envisages the spectrum auction being held in March 2013 and as a result, competitors will be unable to begin to rolling out their own 4G networks before the second half of 2013.

What does the EE licence variation provide?

The variation permits EE to offer both LTE and WiMAX services, in addition to its existing GSM and UMTS services on its current share of the 1800MHz spectrum.

When will the changes take effect?

The changes will be effective from 11 September 2012.

How will this affect the industry?

Competitors such as Vodafone, Three and O2 have argued that allowing EE (which happens to control nearly half of the consumer market and has access to around half of the available spectrum) to implement a 4G network has the risk of skewing competition and distorting the market, prior to a fully competitive 4G market coming into existence. Ofcom has taken the opposite view in its decision and sees any further delay in bring 4G to the domestic market as being to the greater detriment of the consumer.

It seems that as well as taking on board the EC Decision, Ofcom has also been cognisant of EE's undertaking (given to the EC as part of the competition review in to the merger between T-mobile and Orange) to dispose of 2x15MHz of its current 1800MHz spectrum. EE has announced that it has struck a deal to trade the spectrum to Three, subject to regulatory approvals. While Three has been and remains critical of the distortion created by the spectrum liberalisation programme to date (it was the only operator to have paid market rates for its spectrum for its 3G services) it may well come out in a position of relative advantage as a result of Ofcom's decision.

To complicate matters further, Ofcom has previously guaranteed that an element of the 2.6GHz spectrum, up for auction in 2013, would be retained for a fourth entrant (Three) into the market. It is not clear whether or not the proposed divestment of EE's 1800MHz spectrum to Three will cause Ofcom to reassess its proposals for the upcoming spectrum auction. Should the sale of the 2x15MHz spectrum to Three be concluded, it would make commercial sense for Ofcom to remove its guarantee of reserving spectrum for a fourth national wholesaler in the auction.

Although it appears that EE could gain some significant advantages in the 4G market, it will still face the challenges of stimulating demand for its LTE services, convincing handset manufacturers that they should manufacture devices that can operate on LTE services at 1800MHz, and competing with the coverage of other operators' existing 3G networks. Some of these challenges may explain why Ofcom did not feel it necessary to delay EE's variation request.

While other major mobile network operators are unlikely to litigate Ofcom's decision, they still see any potential litigation by Three resulting in a delay to the auction timetable to be a credible threat to the rollout of their own 4G networks, especially given the strategic advantage (in becoming the second national entrant into the 4G market if its purchase of 1800MHz spectrum is approved). It is therefore hard to judge what may happen in the lead up to the auction in 2013. However, the fate of Ofcom's proposed guarantee to retain an element of the spectrum for a fourth entrant into the 4G market hangs in the balance.